Kostohryz: Prepare Now for Major Bank Runs in Europe

The Germans and Dutch have given the signal. Ignore it at your risk!

As this op-ed published at Worldcrunch illustrates, the German press is picking up on this story with relish, emphasizing the fabulous and largely untaxed earnings of spectacularly wealthy Mediterranean scions. This is exactly the sort of "red meat" that Angela Merkel wants to feed to the Germans in the lead-up to German elections. She has built her political reputation as the champion that protects the savings of hard-working and thrifty Germans.

When and if Spaniards come hat-in-hand looking for money to bail out their banks, Merkel is going to be able to point to this study. More importantly, she will be able to say, with some justification, that voters in Germany (who have read or heard of the study) will simply not allow her government to bail out rich Spaniards and Italians who evidently can afford to bail themselves out.

Major Bank Runs May Be Triggered

Unless, the northern countries backtrack hard on their new policy on "bailing in" unsecured deposits (i.e., deposits of more than 100,000 euros), it is going to be a true miracle if there is not a major run on Spanish and perhaps even Italian banks. At that point, we shall see whether the northern Europeans have the stomach to stick around to watch southern European banks collapse.

Rumors are already strong that Luxembourg and Malta -- which have some problems similar to Cyprus -- are next in line.

And Slovenia, which is seeing major banking problems due to skyrocketing credit defaults, seems to be in the rumor mill as well.

If any of these nations experience a new banking crisis, will the treatment of large depositors be any different than that received by large depositors in Cyprus?

In conclusion, I believe that if one more EU country executes a bail-in of large depositors, a new pan-European banking crisis may be set in motion. Right now, EU leaders can get away with claiming that the Cyprus situation is unique. However, if another country is forced to bail in large depositors, it will be a minor miracle if most large depositors stick around to see whether the new bail-in policy will apply to their own European bank.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

James Kostohryz has accumulated over twenty years of experience investing and trading virtually every asset class across the globe.

Kostohryz started his investment career as an analyst at one of the US's largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, Kostohryz became Chief Global Strategist and Head of International investments for a major investment bank. Kostohryz currently manages his own investment firm, specializing in proprietary trading and institutional portfolio management advisory.

Born in Mexico, Kostohryz grew up between south Texas and Colombia, has lived and worked in nine different countries, and has traveled extensively in more than 50 others. Kostohryz actively pursues various intellectual interests and is currently writing a book on the impact of culture on economic development. He is a former NCAA and world-class decathlete and has stayed active in a variety of sports.

Kostohryz graduated with honors from both Stanford University and Harvard Law School.